Some Facts and Figures

Effects of depression in the United States

• Industrial production fell by nearly 45% between the years 1929 and 1932.
• Homebuilding dropped by 80% between the years 1929 and 1932.
• Between 1929 and 1933, U.S. GDP fell around 30%, the stock market lost almost 90% of its value.
• Corporate profits had dropped from $10 billion three years ago to $1billion in 1932.
• Nine million savings accounts had been wiped out between 1930 and 1933.
• Between 1929 and 1932 the income of the average American family was reduced by 40%.
• Over 60% of Americans were categorized as poor by the federal government in 1933.
• In 1929, the unemployment rate averaged 3%. In 1933, 25% of all workers and 37% of all nonfarm workers were unemployed.In Cleveland, Ohio, the unemployment rate was 60%; in Toledo, Ohio, 80%.
• In the early 1930s, more people emigrated from the United States than immigrated to it. One Soviet trading corporation in New York averaged 350 applications a day from Americans seeking jobs in the Soviet Union.
• Over one million families lost their farms between 1930 and 1934
• There were two million homeless people migrating around the country.
• One Arkansas man walked 900 miles looking for work.

• New York social workers reported that 25% of all schoolchildren were malnourished. In the mining counties of West Virginia, Illinois, Kentucky, and Pennsylvania, the proportion of malnourished children was perhaps as high as 90%.
• Many people became ill with diseases such as tuberculosis

However, even shortly after the Wall Street Crash of 1929, optimism persisted; John D. Rockefeller said that "These are days when many are discouraged. In the 93 years of my life, depressions have come and gone. Prosperity has always returned and will again."

Text 6. The Great Depression. Economic Recovery. Shortly after President Roosevelt was inaugurated in 1933, drought and erosion combined to cause the Dust Bowl, shifting hundreds of thousands of displaced persons off their farms in the midwest. From his inauguration onward, Roosevelt argued that restructuring of the economy would be needed to prevent another depression or avoid prolonging the current one. New Deal programs sought to stimulate demand and provide work and relief for the impoverished through increased government spending and institute financial reforms.

Early changes by the Roosevelt administration included:

• Instituting regulations to fight deflationary "cut-throat competition" through the National Recovery Administration (NRA)
• Setting minimum prices and wages, labor standards, and competitive conditions in all industries through the NRA.
• Encouraging unions that would raise wages, to increase the purchasing power of the working class.
• Cutting farm production to raise prices through the Agricultural Adjustment Act and its successors.
• Forcing businesses to work with government to set price codes through the NRA.

The massive rearmament policies to counter the threat from Nazi Germany helped stimulate the economies of Europe in 1937-39. By 1937, unemployment in Britain had fallen to 1.5 million. The mobilization of manpower following the outbreak of war in 1939 finally ended unemployment.

In the United States, the massive war spending doubled the GNP, either masking the effects of the Depression or essentially ending the Depression. Businessmen ignored the mounting national debt and heavy new taxes, redoubling their efforts for greater output to take advantage of generous government contracts. Productivity soared: most people worked overtime and gave up leisure activities to make money after so many hard years. People accepted rationing and price controls for the first time as a way of expressing their support for the war effort. Cost-plus pricing in munitions contracts guaranteed businesses a profit no matter how many mediocre workers they employed or how inefficient the techniques they used. The demand was for a vast quantity of war supplies as soon as possible, regardless of cost. Businesses hired every person in sight, even driving sound trucks up and down city streets begging people to apply for jobs. New workers were needed to replace the 11 million working-age men serving in the military. These events magnified the role of the federal government in the national economy. In 1929, federal expenditures accounted for only 3% of GNP. Between 1933 and 1939, federal expenditure tripled, and Roosevelt's critics charged that he was turning America into a socialist state.

The major powers devoted 50–60% of their total GDP to war production at the peak in 1943. The Allies produced about three times as much in munitions as the Axis powers.

Text 7. Hyperinflation. In economics, hyperinflation is inflation that is "out of control", a condition in which prices increase rapidly as a currency loses its value. Definitions used by the media vary from “a cumulative inflation rate over three years approaching 100%” to "inflation exceeding 50% a month”. In informal usage the term is often applied to much lower rates. As a rule of thumb, normal inflation is reported per year, but hyperinflation is often reported for much shorter intervals, often per month.

The definition used by most economists is "an inflationary cycle without any tendency toward equilibrium." A vicious circle is created in which more and more inflation is created with each iteration of the cycle. Although there is a great deal of debate about the root causes of hyperinflation, it becomes visible when there is an unchecked increase in the money supply (or drastic debasement of coinage) usually accompanied by a widespread unwillingness to hold the money for more than the time needed to trade it for something tangible to avoid further loss. Hyperinflation is often associated with wars (or their aftermath), economic depressions, and political or social upheavals.

The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money.

Hyperinflation is generally associated with paper money because this can easily be used to increase the money supply: add more zeros to the plates and print, or even stamp old notes with new numbers. Historically there have been numerous episodes of hyperinflation in various countries, followed by a return to "hard money". Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:

§ Outright lying in official statistics such as money supply, inflation or reserves.

§ Suppression of publication of money supply statistics, or inflation indices.

§ Price and wage controls.

§ Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or something similar.

§ Adjusting the components of the Consumer price index, to remove those items whose prices are rising the fastest.

None of these actions address the root causes of inflation, and in fact, if discovered, tend to further undermine trust in the currency, causing further increases in inflation.

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